A mutual fund has five equally likely outcomes: -5%, 8%, 12%, 15%, and 20%. Calculate the expected return.

Question

Quizplus · Accepted Answer

The expected return is calculated by multiplying each outcome by its probability and then summing those products. With each outcome being equally likely in this case (probability of 1/5 or 0.2 for each), the calculation is: (-5% * 0.2) + (8% * 0.2) + (12% * 0.2) + (15% * 0.2) + (20% * 0.2) = -1% + 1.6% + 2.4% + 3% + 4% = 10%.

A Mutual Fund Has Five Equally Likely Outcomes: -5%, 8